Long-Term Orientation and Tax Avoidance Regulations

Katarzyna Bilicka, Danjue Clancey-Shang () and Yaxuan Qi
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Danjue Clancey-Shang: Jon M. Huntsman School of Business, Utah State University, Logan, UT 84322, USA
Yaxuan Qi: Department of Economics and Finance, City University of Hong Kong, Hong Kong, China

JRFM, 2024, vol. 17, issue 3, 1-13

Abstract: In this paper, we explore the relationship between the culture of the country where a multinational corporation (MNC) is headquartered and the MNC’s stock market reaction to tax avoidance regulations. Specifically, we examine the different responses of MNCs following the implementation of the 2010 UK reform that restricted profit shifting for a specific group of firms. We find that, in countries with short-term-oriented cultures, MNCs affected by this reform experienced positive stock market responses relative to their unaffected counterparts. This is not found in long-term-oriented cultures. This difference in response can partly be explained by the differing perceptions of the role tax havens play in tax minimization practices between more long-term-oriented cultures and those oriented towards the short term. We provide evidence that investors from more future-oriented cultures may recognize the short-lived effectiveness of a regulation ex ante, and thus price the quasi-exogenous market shock differently than their more short-term-oriented counterparts.

Keywords: long-term orientation; debt shifting; multinational companies; tax avoidance; stock market responses (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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